Fair trade on the menu

The issue is having wider repercussions as the consumer benefit of the document in its current form is now being called into question.

Aifa director general Chris Cummings says the OFT’s decision has sent a clear message that the menu has been skewed against advisers since it was set up when depolarisation was introduced last June.

He says changes promised by the FSA in revising its questionnaire to minimise the chance of firms providing incorrect information and new checks to improve data quality will ensure that the work and cost of financial advisers is put in a truer light.

But Cummings says it is worrying that it has taken over a year and a half and some serious prodding from the OFT for the FSA to tackle the issue.

Aifa first aired its concerns in February 2005 when former director general David Severn wrote to the FSA, complaining that the estimates on the average cost of advice were wrong and he called on the regulator to look again at the figures.

But the regulator said it had taken reasonable steps to calculate the figures which had been checked and verified by Deloitte & Touche.

Aifa then took its complaint to the OFT in April 2005.

Last week, the OFT published its conclusions which showed that non-advised sales had been included in information returns and made market averages too low, particularly on investment products.

However, it also found there was insufficient evidence of consumer detriment to warrant the expense of changing the existing market-average figures in the current menu.

Cummings says he does not want additional costs for firms having to update menus, especially as the figures are updated on an annual basis anyway.

The hope is that the next update will provide a true average for consumers can assess the price of advice.

An OFT spokesman says it is happy with the way the FSA has responded and addressed the issues and claims this has been a quick and fairly simple solution compared with many disputes.

It expects the FSA to “act on its findings to ensure that the market average for collective investment schemes is as accurate as possible and validation checks are as rigorous as possible”.

Personal Finance Society public affairs director John Ellis says the reason why the FSA did nothing was because of the expense to the industry of splitting out non-advised sales and he warns that the OFT ruling will add complexity to returns.

Ellis claims the menu has never worked in the interests of either consumers or advisers and this episode is a further example of its blunt and cumbersome nature.

“The menu has been less than satisfactory and this yet again provides support for our calls for the menu to be scrapped and replaced with a simpler document with completely transparent costs,” says Ellis.

Cummings says the menu should be retained but the OFT action should act as a catalyst for a greatly simplified version.

Cummings and Ellis both agree about the huge threat to the menu from Mifid and it is clear that the FSA has been wary of reviewing or tampering with the menu before the implications of the European directive are clear.

FSA spokeswoman Sam Bennett says the adjusted figures will not a big enough change to affect a consumer’s decision significantly and are far lower than Aifa’s original estimates.

The FSA’s report found the market average for collective investment schemes was 3.9 per cent rather than the 3.59 per cent stated on the menu but Aifa originally estimated the figure should have been 5.6 per cent.

Bennett says the regulator was already looking at improving its procedures and the new set of figures due in November will take account of the changes.

The Analysts compliance officer Tom Kean says the move is good news for advisers but does not address the fundamental flaws of the menu.

He says 99 per cent of clients do not understand the menu in the first place and are not being properly served by a document which was brought in to help them.

“I cannot tell you how frustrated we are about the menu which has added such complexity without benefiting the consumer. The OFT decision is a welcome one, addressing obvious concerns we all had, but it is time for either a fundamental simplification of the menu or scrapping it altogether,” he says.

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